FOREX Boomerang Testing

The term "forex" is short for "foreign exchange," and represents the brisk trade in international currencies. The global forex market is very busy, with an average daily turnover of $4.0 trillion as of April 2010. The market operates 24 hours a day, 5 days a week. It continues to grow, with almost 55 percent of forex transactions taking place through banks in Great Britain and the United States. Many forex traders are individuals, and the boomerang is a strategy individual traders test and use in the market.

Forex Basics
Forex is also known as FX, or sometimes 4X. Forex is an over-the-counter market, which simply means that one financial instrument is traded directly for another. All trades are done by computer, and a trade is executed in the act of buying one currency while simultaneously selling another. In short, a trader exchanges one type of currency for another. Approximately five percent of forex traders consist of companies that buy and sell products with foreign countries, and convert profits into local currencies. The other 95 percent of forex traders are speculators who trade strictly for profit.

Testing
Testing refers to simulation of a trading environment. The simulation is used to test trading strategies without actually risking any money. The theory behind testing is that trading strategies replicated successfully in a testing environment, using historical market data, may be successful in real trading. Strategies can be implemented manually, or automated with software known as trading robots.

Boomerang
The boomerang strategy is designed for the EUR/USD currency pair. This is the most commonly traded currency pair in forex and it has a narrow bid-ask spread, which is the difference between what a seller is asking and what a potential buyer is bidding. A narrow spread is conducive to trading strategies involving quick execution. The boomerang is that type of strategy, and is based on the tendency of the forex market to have very little activity at certain times of the day. This is due to inactivity in the three major forex markets -- Great Britain, the United States and Japan. This creates unpredictable and unreliable market movements.

The Strategy
The boomerang strategy starts with a sell order for a currency, entered at a price that is above the current market price. This allows a possible execution if the market moves higher. At the same time, another trade is set as a buy order at a price below the market, to execute in case the market moves down. A common term in forex trading is "pip," which stands for "percentage in point," and is the smallest allowable change in price, equal to $0.0001. In the boomerang strategy, trades are set at 15 pips above and below the market price, with stop-loss orders placed on each trade in a 15-pip margin. A stop-loss, also known as a stop order or stop-market order, is a sell order placed to execute when a security --- in this case, a certain currency --- reaches a designated price. Stop-loss orders are used to limit a trader's losses on his positions.

Trading Activity
Since trading activity is very thin during the major markets' downtime, one large trade order can move the market, with the probability that the market will retrace, or move right back to where it was. This provides the opportunity to execute at least one trade. This strategy is designed to close trades quickly to make a profit, but is best used by an experienced trader.

Automated Forex Trading: Clever yet Effective Technology

Why Forex trading? This is probably one of the questions that you need a reasonable answer. There are hundreds of investments out there that you can prefer, but why go trading foreign currencies instead? Forex investment is unique in various aspects. Its trading volume is relatively huge compared to other market.

It has extreme liquidity or the capability of either buying or selling the currency without causing significant movement in the market price. It has the largest number and variety of traders. It is one of the markets that have long trading hours (24 hours each day, except during weekends. Trading locations are almost everywhere, not just in the United States or major cities of Europe. There are different factors that affect foreign exchange rate.

Another whooping fact that will make you excited to go on Forex trading: it has an average turnover in traditional foreign exchange market of around $1.88 trillion daily, according to the Triennial Central Bank Survey of the BIS (Bank for International Settlements). Here are the daily averages of turnover on the Forex market for the last 17 years:

$500 billion (April 1989)
$750 billion (April 1992)
$1.18 trillion (April 1995)
$1.48 trillion (April 1998)
$1.16 trillion (April 2001)
$1.88 trillion (April 2004)

From the figures alone, you will notice that the average trend of Forex turnover is increasing. It is estimated to reach as high as 2 to 3 trillion dollars within the next 8 to 10 years, if the number of traders around the world will continue to increase. As a matter of fact, everyone have the chance of getting a substantial slice of the Forex market wealth pie, especially that the Forex trading marketing is now on its automation process.

The concept of automation becomes the new trend to the foreign exchange trading market. The Interbank spot Forex market has also considered switching to the automated method as well. There are several benefits that a Forex trader can derive from automated Forex trading. Here are some of such benefits and figure out why Forex trading as well as other investments (futures and commodities) prefer the automated process.

Through automated process, transactions can now be done in real time. Although manual systems have existed for quite some time now, it is difficult to achieve such benefit that the automated Forex system can offer to its traders. All of the trades can happen within a few milliseconds and can be a big plus for automated transactions against the manual system. In fact, there are problems that are addressed using automated Forex trading especially if the trader is losing a few times in a row that prevents him from making new trades. Such problem could be addressed using the automatic trading system.

With automated Forex trading, you will have a greater diversification. It means that you can trade in various markets in different time zones at a time. You can execute trades with traders from Singapore or London even it is already 12 midnight in the United States. This benefit allows you a multiple exchange model option. You can use varying trading models to evaluate short-term data. This means that you will be able to predict the trend for a shorter period of time, let us say from fifteen minutes to half an hour.

As previously mentioned, the Forex market is unique because of its extreme liquidity. This liquidity is increased when the market goes automated. Risk management problems are solved through automated Forex trading. International checks, which are commonly used in making purchases on Forex market, are synchronized through automated technology. Since the transaction in an automated process is now on real time, there is a slim chance that the payments will be delayed, reducing the risk of non-payment by either parties. Although there are problems noted with the use of the automated system, it can be fixed through consistently-updated technologies.

With automated Forex trading market, the prediction of $2-3 trillion average daily turnover within the nest 8 to 10 years can be changed within the next 4 to 5 years. Given the quick yet efficient trades on varying time zones, automated Forex trading will now be among the existing lucrative business around the world.

Creating Profitable Forex Trading Systems in Five Easy Steps

One rule of thumb that every aspiring entrepreneur should remember is that to make huge profits, you should know how to do it by yourself—and not rely on other’s efforts. Being independent from other people will help you determine what things are best for your business.

Such rule applies on all types of investments, including foreign currency trading, or mostly known as Forex trading. It cannot be denied that Forex is the largest existing market around the world, which is estimated to have an excess of 2 trillion U.S. dollars worth of foreign currencies are traded each day. It is larger than the magnitude of the New York Stock Exchange, which is approximately 50 billion U.S. dollars. Thus, Forex market exceeds all combined equity markets around the world.

With such huge wealth circulating around the Forex market, one of your financial goals is to grab a major slice of that $2 trillion average daily turnover in the market. How you will be able to get a substantial portion of that average turnover if you do not know how you will handle your Forex business? Although you cannot live in the market alone (you need business partners and/or financial advisers to help you along), only you can determine what the best Forex business there is for you.

To get huge profits out of your Forex trading career, you need to build your own profitable system—a trading system that will bring your not just hundreds but thousands of dollars worth of Forex revenues. Such trading system is available on the market, but as previously mentioned, you need to be independent—and you need to have your own Forex trading system that will help you achieve your financial goals.

For new traders, it is difficult for them to device their own trading system since they do not have too much knowledge about the Forex market. However, even a neophyte trader can device a trading system that will fit on his personal preference and needs—in just five easy steps! Before we discuss the five easy steps towards a profitable Forex trading system, you need to learn first the three main characteristics of a successful Forex trading system. These are as follows:

1. A successful Forex trading system is simple. There is no need for a complicated trading system with too many rules. It is a proven truth that simple systems work better than complicated ones, and they have higher chances of success despite of the “brutal” characteristic of Forex trading.

2. A successful Forex trading system cuts losses and runs profits. Keep in mind that you need a trading system that gets the huge possible profits and eliminates losses quickly, if not instantly.

3. A successful Forex trading system follows long-term trends. You will never cover your losses if you are just generating small profits. Keep in mind that the Forex market is worth $2 trillion U.S. dollars, thus there is no point in trading in exchange for just small profits if you have the opportunity to make trades for larger revenues. Focus on long-term trends and you will be able to see better results.

Now, here are the five easy steps in building a profitable Forex trading system:

1. As previously mentioned, your trading system must be as simple as possible. Integrate few yet essential rules and an extensive investment management system.

2. Always look for long-term trends (preferably on a weekly basis), then shift to daily charts and to time entry. This will help you analyze market trends efficiently.

3. The ideal way of trading foreign currencies is through breakout method.

4. Always watch for any break that you will note on your chart, which is commonly confirmed by stochastic crossed with bearish divergence. This will be your great timing tool whether you will enter a certain deal or not.

5. You must integrate effective time management within your system. Time is gold and is one of your precious resources. Design a trading system that is time efficient—where you can maximize the potential of your time resources to generate huge profits.

Get away with complicated systems; it will just ruin your entire Forex trading career. Build a simpler one and see for yourself how profitable it is.